A business needs to calculate how many products they will have to sell to make a profit. If the business is not selling enough products to make a profit they would have to consider the purpose of continuing to trade.

The point at which a company has sold enough products or services to have covered all their costs is known as the break-even point.

Break-even is when a business is making neither a profit nor a loss.

To be able to accurately calculate the point at which a company breaks even you need to be able to identify all the business costs, such as:

  • the cost of raw materials
  • the cost of salaries
  • the cost of energy
  • cost of advertising

These and many other costs all go towards the output of a business.